Delta Air Lines Corporate History
When cotton was king in the South and tens of thousands of bales of it lined nearly every commercial river wharf and rail freight depot, the boll weevil was a mite-sized Attila the Hun. Against the devastation wreaked by the boll weevil, C. W. Woolman, an agricultural engineer and aeronautical enthusiast, organized Huff-Daland Dusters, a subsidiary of Huff-Daland Manufacturing Co. of New York. Woolman wanted to provide fast, efficient aerial application of lead arsenate, then the only effective insecticide against the boll weevil. After a tentative first year of operations out of Macon, Ga., Huff-Daland Dusters moved its headquarters to Monroe, La., in 1925 to take advantage of Monroe's centrality with respect to the South's larger cotton fields.
The parent company, Huff-Daland Manufacturing, built the first plane designed specifically for crop-dusting, and Huff-Daland Dusters' 1925 fleet of 18 planes then was the largest privately-owned aircraft fleet in the world. Soon the fleet was 25 airplanes strong, in assorted sizes, and was known as "Ton of Dust."
The five years from 1926 to 1930 saw swift changes in the company. Woolman expanded his cropdusting operations to Peru, where the seasons were reversed, to give his company year-round revenues. While there, Huff-Daland Dusters became the first North American airline to operate an airmail route in South America, a 1,500-mile journey between points in Peru and Ecuador.
Woolman, with the aid of Monroe businessmen, bought the assets of Huff-Daland Dusters from the parent company in 1928, and in November the company became Delta Air Service. D. Y. Smith, Sr. became the first president while Woolman retained the titles of vice president and general manager. Smith and Woolman then led Delta through the difficult Depression years.
Delta sold its South American airmail route to Pan American Grace in 1928, and sold its crop dusters to a Peruvian firm. Delta changed its name to Delta Air Corp. in 1930. At a time when airmail contracts determined whether an airline would live or die, Smith and Woolman pulled Delta through the critical Depression years of 1930-1933 without such a contract (Delta did not receive its first U.S. airmail contract until July 4, 1934). Crop-dusting and airmail were the core of Delta's business in the years 1934 through 1939, but in 1940 the Civil Aeronautics Board (CAB) worked a revolution in Delta's future by awarding the carrier several air routes radiating from Atlanta. Delta moved its general offices and overhaul base to Atlanta in 1941.
Delta, like other airlines, performed work for the government during World War 11. It modified aircraft for the military and maintained a military supply route. This work provided a stable economic base for Delta's gradual buildup of passenger service near the end of the war. Delta, responding to its reorganized revenue base, adopted its present name, Delta Air Lines Inc., on Dec. 18, 1945.
Chicago & Southern Air Lines
Delta found its growth path intersecting those of other airlines after World War 11. The first of these was Chicago & Southern Air Lines (C&S) which began in California as Pacific Seaboard Airlines, but changed its name and geographic location after winning the Chicago-New Orleans airmail route. Pacific Seaboard began airmail service on June 3, 1934, and in December 1935 became Chicago & Southern Air Lines with operations in the Mississippi Valley.
Carleton Putnam, founder and president of Chicago & Southern, led the carrier during the 1930s and 1940s to a reputation as a profitable and wellmanaged airline serving the South Central United States before expanding service into the Caribbean in the early 1950s.
The Caribbean was not enough, Putnam felt: Chicago & Southern needed further expansion to remain competitive. But, given economic and regulatory constraints, Chicago & Southern's only realistic chance of expanding was through merger. Putnam surveyed the scene and concluded that complementary route systems and a shared business philosophy made a merger with Delta Air Lines the best choice. He entered into discussions with Delta, and on May 1, 1953, the CAB approved the merger. The merger worked: Route systems fit hand-in-glove and both airlines had a "family" atmosphere that instilled company-wide esprit de corps.
A beefed-up Delta became a leader in the transition into the Jet Age. Delta was the first airline to bring the DC-8, Convair 880 and DC-9 into service. It also inaugurated the hub-and-spoke system as a response both to the mixed nature of its fleet and to the demands of competing with the giant in its back yard, Eastern. Instead of attacking Eastern head-on, which management decided might be suicidal, Delta initiated guerrilla warfare, sending its smaller propeller aircraft into many little communities and bringing traffic from those points back to its Atlanta hub where jets then took the passengers to their destinations. In this way, Delta began to close the gap on Eastern in passengers carried. More importantly, Delta furthered the loyalty of its customer base by keeping passengers within its system from beginning to end of a journey.
By 1978, the year of deregulation, several other airlines, notably Eastern, Piedmont and American, saw the competitive wisdom of the hub-andspoke system, and in a deregulated environment Delta, Eastem, Piedmont and American forced the rest of the airline industry to adopt the same strategy or perish. TWA, for one, fell into serious disarray in part because it was slow to accept the hub-and-spoke system.
Delta was large enough by 1978 to rival Eastern head-on. One reason was that in 19 72 it underwent another merger.
Northeast Airlines
Northeast Airlines, the merger partner, began in 1933 as Boston-Maine Airways, operating a single route under contract from National Airways. Boston-Maine purchased National in 1937, and in 1940 it changed its name to Northeast Airlines. This airline expanded its service from New England southward along the East Coast to Washington, D.C., and Norfolk, Va., throughout the 1930s and 1940s. It added service to points in Florida in the early 1950s, and in 1959 introduced a B-707 jet leased from TWA on its New York-Miami route.
It experienced financial difficulties by 1960, however, and in 1965 it was sold to Storer Broadcasting Co. It then had a brief period of prosperity, but by 1972 the carrier was devastated financially and began seeking a merger. Following negotiations with Delta, Northwest and TWA, the company agreed to merge with Delta and, on Aug. 1, 1972, the deal was completed. Delta now found itself flying to 98 cities, including six in five other countries.
Delta in the late 1970s received some route awards from the CAB that helped it grow. Delta's first transAtlantic service, Atlanta to London, began on April 30, 1978, and a year later Delta began service between Atlanta and Frankfurt.
Delta was in much better position to thrive in a deregulated environment than its chief Southeast rival, Eastern. Delta's debt load was paltry compared to Eastern's ($1.6 billion of which was assumed through a decision in 1978 to buy new aircraft), and while Eastern was torn increasingly by labor-management strife, Delta management won its employees' dedication and loyalty through such policies as never laying off people during a recession; bargaining in good faith with its pilot union; and maintaining a "family feeling" throughout the airline. Therefore, Delta and Eastern exchanged places.
On the West Coast, another pioneering airline, Western, was neither Delta-fortunate nor Easternwretched. But it found itself needing a merger.
Western Air Lines
Western Air Lines organized as Western Air Express in 1925 and made its first flight-airmail from Los Angeles to Salt Lake City-in April 1926. In 1930 it became the first airline to introduce the Fokker F-32 - then the largest airliner in the world, a four-engine aircraft that could carry 32 passengers - to commercial airline operations. About the same time, Irving Krick, a Western employee, developed the air mass analysis system of weather forecasting. Krick's highly effective system helped give Western the nickname "the airline with perpetual tailwinds," and by the end of 1930, Western, flying 15,832 route miles, was the largest airline in the world.
This good fortune did not last. The Post Office Department canceled all but one of Western's airmail contracts in 1934, reducing the airline to flying its original Los Angeles-Salt Lake City route plus a spur to San Diego. Western responded by shaping its own good fortune: The carrier rebuilt around the DC-3 and passenger service and became the first airline to complete 10 years of operation without a single passenger fatality.
Western seemed on the way to prominence when war with Germany and its allies broke out. World War 11 then slashed Western's fleet to five aircraft as the military requisitioned the rest for the war effort. Western's other contributions to the war included pilot training for the military and operations to fly personnel and material to Alaska.
Western, like American and Delta, began reshaping itself as World War 11 progressed. Western expanded into the Rockies and northern Plains in 1944 by merging with Inland Air Lines. As the airline grew, it became the first carrier to introduce halffares for children and the first to have in-flight television. Western continued to grow an increment at a time throughout the regulated era; yet when deregulation arrived, it remained a small carrier compared with the giants roaming its markets.
The predictable happened: Free-wheeling price competition drove fares down and Western began losing money in 1980. Red ink poured freely through 1984. The carrier made a comeback in 1985 when it reported profits of $67.1 million, but by then management was convinced Western needed to merge with a giant to protect its stockholders' investment. Delta and Western announced a merger agreement on Sept. 9, 1986. The merger became final on April 1, 1987.
Airline mergers tend to cause tensions, in part because of seniority problems among the pilots and other unionized employees, in part because of clashes in organizational policies and culture. Such problems especially were notable in the Northwest-Republic and Continental-People Express mergers. But even Delta's most difficult merger, Delta-Northeast, was easy compared to most airline mergers because Delta's management worked hard to make newcomers feel wanted. After the most recent one, DeltaWestern, Delta preserved Western employees' jobs by moving roughly 1,500 people from Los Angeles to Atlanta.
Delta served 132 domestic cities in 42 states, the District of Columbia and Puerto Rico immediately after the Western merger. It also operated flights to 23 international destinations in 11 foreign countries. From then until mid-1990, Delta added service from Atlanta to Dublin, Ireland; Seoul, Korea; Taipei, Taiwan; and Hamburg, Germany. Service began, too, from Cincinnati to Frankfurt, Germany.
While the airline world crumbled around it, Delta Air Lines kept two of its traditions alive by expanding in the midst of the 1990-1991 recession and preserving labor peace with a contract that reportedly made Delta's pilots the highest-paid in the industry.
Delta also was one of the first competitors on the scene to scoop up assets when Eastern Air Lines quit flying. Delta bought 18 gates on Concourse B at Atlanta's Hartsfield International Airport for $41.4 million; nine landing slots at Washington National Airport for $5.4 million; seven slots at La Guardia Airport for $3.5 million; and 10 Lockheed L-101150s for $60 million.
Delta bought six long-range Lockheed L-1011500s from Air Canada in May 1991 in a transaction valued by industry analysts at about $120 million. Delta made the Air Canada deal, like the Eastern L-1011 purchase, to bolster its expanding international service. The Air Canada purchase brought Delta's total Lockheed L-1011 fleet to 55 aircraft. Delta also expected the delivery of 45 other aircraft in 1991. To aid in taking on so many aircraft, Delta began a $400-million program in March to expand and modernize its maintenance and support operations.
As of late May 1991, Delta flew to 32 cities in 14 other countries and was a leading candidate to absorb the remains of Pan American Airways. Meanwhile, without buying Pan Am assets, Delta expanded internationally. Already scheduled to begin service to Copenhagen, Berlin and Hong Kong in 1991, Delta also was considering a hub in Taipei and bidding for two of TWA's London routes (Baltimore and Philadelphia).
Delta took these steps despite heavy losses in the first six months of fiscal 1991 (covering fourth quarter 1990 and first quarter 1991). Over that stretch, Delta lost $259.4 million on sales of $4.35 billion. Delta earned a profit of $197.4 million on sales of $4.22 billion In the corresponding period of its fiscal year 1990.
Delta previously sat on the sidelines watching United and American scoop up international assets from financially ailing carriers. Then, in April 1991, Delta issued $476 million in common stock to raise money for international expansion. Three months later the carrier reached a tentative agreement with Pan Am officials to buy about two dozen of Pan Am's trans-Atlantic routes, its hub in Frankfurt, Germany, its Northeast shuttle and 45 jets. The price: a paltry $260 million-low compared to other airline deals, such as United's $290-million purchase of five Pan Am routes to London and American's $445-million buy for routes from Trans World Airlines.
However, when a bankruptcy court judge approved Delta's purchase one month later, the cost had risen to $1.4 billion because of a last minute joint offer from United, TWA and American. The scope of the transaction: $416 million for Pan Am assets including its European operations, Northeast shuttle, 24 leased B-727s and 21 leased A-310s plus spare engines and other parts. Delta also would pay $305 million for 45-percent equity in a newly reorganized Pan Am, provide emergency loans totaling $80 million to keep the carrier operating and assume $669 million in Pan Am liabilities.
Chairman and chief executive officer Ronald Allen, responding to concern in the Delta community over the timing of the transaction made during a miserable financial year for all airlines, said in a 1991 interview he did not believe Delta risked too much financially. The carrier had $700 million in cash on hand at the end of June, including the $476 million raised through the stock issue. Less than half the $ 1.39-billion cost reportedly would be in cash. Delta's pilot union, ALPA, responded with a 17-month extension of its contract in view of the financial strain the Pan Am buy placed on the airline. Delta did manage a third quarter 1991 net profit of $13.1 million, though the carrier warned the European expansion would depress fourth-quarter results.
The Pan Am deal gave Delta a much coveted international gateway at New York's JFK International where most of Pan Am's trans-Atlantic routes originated; Delta had little presence at JFK before the deal. Delta boosted its trans-Atlantic weekly round trips from 92 to 195 by Nov. 1, 1991. International cities served by Delta jumped from 34 to 57 and nations served rose from 16 to 34. Delta's new destinations from New York included Barcelona, Spain; Brussels; Geneva; Helsinki, Finland; Lisbon, Portugal; Madrid; Milan, Italy; Moscow, Nice, France; Oslo, Norway; Rome; Stockholm; Tel Aviv, Israel (via Paris); and Zurich, Switzerland. From Frankfurt, Germany: Athens, Greece; Bombay, India; Bucharest, Romania; Budapest, Hungary, Delhi, India; Istanbul, Turkey; Moscow; Prague, Czechoslovakia; Vienna, Austria and Warsaw, Poland.
Originally Delta forecast the reorganized Pan Am would post an $83-million profit by 1995. But it was apparent by October 1991 there were flaws in the reorganization plan. Pan Am soon ran out of cash and Delta increased its initial $80 million in loans to $140 million. Pan Am's November traffic was 20 percent below management projections, and it became clear the reorganized carrier's revenues would be substantially lower and costs higher than projected. Delta in December refused Pan Am's request for more funding and the ailing carrier shut down.
Delta's net loss totaled $326.2 million the first nine months of the company's 1992 fiscal year, more than the $324.4 million the carrier lost for the fiscal year ended June 30, 199 1, the worst year in its history. Though international traffic was strong, costs associated with operating new routes resulted in a significant increase in operating expenses.
A week after Delta reported fiscal 1992 thirdquarter losses of $151.6 million, the carrier announced capital spending cuts of more than $5 billion over nine years and canceled plans to acquire 100 aircraft. Of the $5-billion reduction, $3 billion would occur over the next four years.
Delta in July announced it would lay off most of its 3,500 temporary and part-time workers as part of a program to cut costs by $700 million. The move was made after Delta posted a record fiscal 1992 year-end loss of $506.3 million. Delta's revenue increased 18 percent in 1992 but costs jumped 20 percent. The cuts would save $375 million in 1993 and $ 700 million annually by fiscal 1995. No permanent employees were laid off though reductions included a pay and hiring freeze, revised medical and dental insurance benefits, and work force cuts through attrition.
The losses were large enough to halt - Delta's planned expansion into Latin America. The airline announced it would postpone start-up flights between Orlando, Fla., and Caracas, Venezuela; Guatemala City, Guatemala; and San Jose, Costa Rica. Delta also announced it would slash its California corridor flight schedule by two-thirds.
Ronald Allen in September asked Delta's board to reduce his salary by $ 1 100,000-the amount equal to a raise received months earlier. Nine senior officers also took 5-percent pay cuts. However, ALPA refused management's request to postpone a Sept. 1 pay increase, opting instead to conduct an analysis of the company's finances before agreeing to concessions. Delta responded by announcing its first pilot furlough in 35 years-103 pilots on Dec. 1. Senior vice president of operations Harry C. Alger called the furloughs "a necessary and prudent business decision" since cutbacks in aircraft orders "reaffirmed a projected surplus of pilots." ALPA cried foul, claiming the furloughs were a negotiating tactic by management and violated its contract. Delta canceled the furloughs in November when ALPA agreed to reduce pilots' minimum monthly flying hours.
Delta, unaccustomed to such large financial losses, again took steps to stem costs and in December announced a 5-percent wage reduction for all noncontract employees. Delta also postponed $400 million in aircraft orders until sometime after fiscal year 1995-in addition to the $900 million in deferred aircraft orders already announced. Additionally, the carrier began reevaluating its expansion plans and planned to cut any unprofitable flights. "We're going through a period of major restructuring," Allen said in an interview in USA Today. "We're powering down to be as lean as we can."
Speculation rose that Allen, who in 1987 became the carrier's youngest CEO at age 46, soon would be replaced. Delta's board of directors quickly quashed the rumors, however, by adding the titles of president and chief operating officer to Allen's portfolio pending president Whitley Hawkins' March 1 retirement. Also on March 1, Harry Alger, formerly senior vice president of operations, became the number two man at Delta as its new executive vice president of operations.
Signs that Delta's cost-cutting efforts began to pay off were evident by the end of the calendar year. Delta's net loss was $126.3 million-less than United's or American's-for the quarter ending Dec. 31, and unlike its competitors, Delta's fiscal second quarter loss was less than the previous year's loss for the same quarter.
Delta announced in February 1993 another $500 million in delays and/or cuts in jet purchases for 35 aircraft on firm order or option. The 35 aircraft represented approximately 8.5 percent of the 410 airplanes Delta had on order. Delta also announced 601 pilot furloughs, with 136 pilots furloughed June 1, 1993. Allen said in an interview he sees no quick turnaround for the industry. "Overseas, many economies remain distressed, and we here at home see bankrupt carriers continuing to force uneconomic pricing on the non-bankrupt carriers. All this leaves Delta with no choice but to address those areas in which we have control over spending."
Delta did report improved results for its 1993 fiscal fourth quarter ending June 30. The carrier posted a net profit of $7.149 million before FAS 106 charges. Delta's 1993 fiscal year net loss was $414.8 million before one-time accounting charges, an improvement over its 1992 fiscal-year loss of $506.3 million.
The senior executives responsible for Delta's decision-making, operations and maintenance at the time of publication are Ronald W. Allen, chairman, president and chief executive officer; Harry C. Alger, executive vice president of operations; James W. Callison, senior vice president of corporate and external affairs; and Thomas J. Roeck, Jr., senior vice president of finance, chief financial officer.
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